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Editors Pick

Nigerian Treasury Bills: Learn everything about Tbills

Nigerian Treasury Bills: Learn everything about Tbills

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dividend, MONEY, NAIRA - Nigerian Treasury Bills

This article explains how to invest in Nigerian Treasury Bills

  • A beginner guide to investing in treasury bills.
  • Water-down explanation of treasury bills and how to invest in it.
  • Quick tips on how interest is earned and when it is paid to an investor.
  • A run-down on benefits of investing in treasury bills

What are Treasury Bills?

Treasury Bills are government guaranteed debt instruments issued by CBN on their behalf to finance expenditure. The CBN also uses treasury bills to control money supply in the economy.

How are Treasury Bills Sold?

Treasury Bills are sold through a bi-weekly auction conducted by the CBN. Buyers are requested to quote bids following which the average minimum bid is selected.

Where can I buy Treasury Bills?

Treasury Bills can be bought through any official dealer. The easiest this days are through banks’ treasury bill mobile application. A typical example is the Sterling Bank’s i-invest.

What is the Minimum Amount I can Buy?

Before, you could buy for as low as N10,000 and in multiples of N1,000 thereafter. However, this was increased to N50,000,001 in 2017. This article explains how you can buy treasury bills if you do not have up to N50 million. Though, the minimum for the i-invest mobile application is N100,000.

When is it usually sold?

Treasury Bills is sold every other Wednesday (bi-weekly) as announced by the CBN. The CBN announces issuances in their websites and in the pages of national dailies. You can also ask your bank account officer to notify you ahead of an issuance.

How Can I Buy Treasury Bills?

To buy Treasury Bills you will have to approach your bank requesting for a form. You fill the form with your personal information also indicating the amount you want to buy as well has your bid rate.

With the advent of banks’ treasury bills mobile application, you are only required to fill a signup form once.

BONUS: Follow link to use Nairametrics’ treasury bills calculator

treasury bills calculator

What is the bid rate?

The bid rate otherwise called your STOP RATE is the likely interest rate that you have indicated to receive for the principal that you investing in the TB’s. For example you can indicate an interest rate of 10% as your expected rate. Your bid rate will most likely be different from that of other intending buyers of TB’s.

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How is the Bid Rate selected?

The CBN selects the bids that fall below the accepted marginal rates. The Marginal Rate is the minimum average rate for bids submitted within a bid window.  For example, if the marginal bid rate for a bid opened Wednesday 27 June is 11% then bids falling below this rate will be accepted and those above rejected.

[Read Also: This is how to bid for the second Treasury Bills Sale of 2019]

What if I don’t have a Bid rate?

If you do not have a Stop Rate or you are not sure of a rate you can select the option of having the bank choose a rate for you. However, this does not guarantee that the bank rate will be chosen or will be the best.

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Can I still buy if my Bid is rejected?

You can purchase TB’s from the secondary market Over The Counter (OTC) through a broker. This is also where buyers and sellers of TB’s trade the notes in exchange for cash.

What are the durations (tenor) for the TB’s?

Treasury Bills are usually for 91 days, 182 days and 364 days. As such, you can have the CBN hold your cash for 91 days, 182 days or 364 days, depending on your choice. However, the CBN can decide they want to sell Treasury Bills for all the tenor available or either of them.

BONUS: Follow link to use Nairametrics’ treasury bills calculator

treasury bills calculator

Can I sell before Maturity?

Yes, you can sell Treasury Bills before maturity. As mentioned above, this can be done through the OTC market. The price at which you sell depends on the forces of demand and supply. For example a N100,000 face value TB maybe selling for less or more depending on the yield expectation of the buyers. If your face value is trading at a higher price, it means you can sell your treasury bills at a profit as such your N100,000 can sell for N101,000 or more. If your face value is trading at a lower price, it means you can sell your treasury bills at a loss as such your N100,000 can sell for N99,000 or less.

When is the interest paid?

The interest element of a treasury bill is paid to you upfront and credited to your bank account. For example, if you purchase a N100,000 TB with an interest rate of 10% the CBN debits your account with N90,000 as such your N10,000 interest is paid upfront. Upon maturity, you are paid the face value N100,000. The upfront payment of your interest makes your true yield actually higher.

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What is a True Yield?

True Yield is your actual Return on Investment. (ROI). Using the example above, the initial yield for the N100,000 is 10%. However, because they pay you interest upfront your true yield is actually the N10,000 in interest divided by the N90,000 actually deducted from your account. That is N10,000/N90,000 or 11.11%. This is, thus, higher than the 10% coupon. The True Yield is completely earned when you hold to maturity.

Can I roll over my investment?

The CBN does not rollover your investment automatically. However, you can give your bank a mandate to rollover the principal on your treasury bill upon maturity. You can also get the benefit of compounding interest by asking your bank to reinvest the interest portion of your TB once it is paid.

Are Treasury Bills Safe?

Treasury Bills are one of the safest forms of investment and are backed by the full faith and credit of the Federal Government of Nigeria.

BONUS: Follow link to use Nairametrics’ treasury bills calculator

treasury bills calculator

Apart from the Interest Rates, what are the benefits?

  • A good source of steady stream of income.
  • Treasury Bills are a good investment outlet for your free and disposable cash.
  • Treasury Bills are good investments for people who wish to save.
  • Treasury Bills are also tax free.
  • Treasury Bills are very liquid and can be converted to cash quickly.
  • They can be used as a collateral.

Are Treasury Bills Taxable?

Interest derivable from Treasury Bills are not taxable.

 BONUS: Follow link to short video on Treasury Bills

 

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Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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                                                                  Currencies

                                                                  DEVALUATION: CBN updates website to official rate of N360/$1

                                                                  The central bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1.

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                                                                  CBN website states oil price is still $61, Naira under pressure as Nigeria records poor export earnings, 4 key sectors the CBN plans to pump money into

                                                                  Just as Nairametrics reported, the Central Bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1. The apex bank has now reflected this change on its website signaling a confirmation. The bank is yet to issue a press release to this effect.

                                                                  The CBN has now officially devalued by 15% moving from N307/$1 to N360/$1. Depreciation at the “market-determined” I&E window is 5% having moved from N360/$1 to N380/$1

                                                                  Devaluation: Nairametrics reported yesterday that the Central Bank of Nigeria (CBN) sold dollars to banks at N380/$1 in a move signifying a devaluation of the currency. Banks trading at the Investor and Exporter (I&E) window bought dollars at N360/$1 from the CBN on Friday, March 20, 2020. The I&E window is the official market where forex is traded between banks, the CBN, foreign investors, and businesses. The central bank typically buys or sells in the market as part of its intervention program.

                                                                  The CBN has updated its website with the official exchange rate.

                                                                  Nairametrics also got hold of a letter from the CBN to banks informing them of the new exchange rate for dollars flowing from the International Money Transfer Operators (IMTOs). According to the CBN, IMTOs will sell to banks at N376/$1 while banks will sell to the CBN at N377/$1. The CBN will sell to BDC’s at N378/$1 while the BDC’s will sell to end-users at “no more than” N380/$1.

                                                                  Single Exchange Rate: A report yesterday also suggested that the CBN also planned to move to a single exchange rate policy for determining the price of the dollar. A senior central bank official who does not want to be identified, said, ‘Today we allowed the rate at the importer and exporters (I&E) window to adjust in response to market developments.’

                                                                  The central bank has now made an apparent u-turn after it had initially that the “market fundamentals do not support naira devaluation at this time” detailing reasons why it did not need to devalue.

                                                                  Falling oil price: Oil prices fell to under $20 on Friday before climbing back up to settle at $23 per barrel. Nigeria’s Bonny light trades at $26 while the benchmark Brent crude trades at $29 per barrel. In response to the crash in oil price, Nigeria’s announced a cut to its 2020 budget by N1.5 trillion as it faced the reality of a potential drop in its revenues. Nairametrics also has information that state governments are getting jittery about their ability to sustain salary payments as a reduction in their federal allocation “FAAC” is anticipated.

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                                                                  Career tips

                                                                  Investment options for salary earners

                                                                  Investment options for the salary earners
                                                                  #Investing #Entrepreneurs #Investment #Salary #Wages

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                                                                  on

                                                                  Investment options for salary earners - bank loan

                                                                  Recently, one of the readers of my articles asked to know what investment options are open to salary earners. A salaried individual is like everyone else except that he or she has a fixed monthly income. This implies that their investments and expenses have to be managed strictly according to their fixed monthly income.

                                                                  Since salary is assumed to be the only source of income for the salaried, it is advisable that such an individual fortify himself financially before investing so that adverse investment performance will not have untold effect on him and his family. Therefore, if you are a salaried prospective investor, you need to:

                                                                  READ: Where to invest N500,000 right now

                                                                  Get life insurance

                                                                  Most families in Nigeria are single income families so much such that if anything bad happens to the income earner, the family gets shattered, at least financially. Again, given the risks inherent in capital market investments, it is only prudent to have a life insurance as a first step in one’s investment journey. It is very baffling to see many investors very deep into the market, yet they do not have life insurance.

                                                                  [Read Also: Understanding the risks in bond investing]

                                                                  Life insurance is and should be a basic part of any financial plan. Life insurance is a protection for loved ones against financial hardship arising from the death of a breadwinner. This is even more important today than ever before with high cost of funeral expenses, college education and medical bills. So, the first investment option for a salaried individual is to get a life insurance.

                                                                  Prepare for financial emergencies

                                                                  Life is full of surprises, emergencies do happen, jobs are lost without notices, and even good investment opportunities emerge sometimes suddenly. There is, therefore, the need for a cash reserve to help weather the financial storms and emergencies when they come calling.

                                                                  READ: SEC issues pre-notice on cancellation of certificates of 157 inactive CMOs

                                                                  Cash reserves do not only provide for emergencies, they also help to ensure that investments are not liquidated prematurely or at inopportune times to cover unexpected expenses. There are no hard and fast rules on what the exact amount of the required cash reserve should be, but most financial experts and planners will advise that an amount that equals about six months of living expenses be set aside.

                                                                  So, as a salaried person, your next investment should be to have a cash reserve. A cash reserve should not necessarily be in a savings account or under the mattress; it could be in an interest-bearing money market account, money market mutual funds with low to zero luck-up period or another form of very liquid investment that is readily convertible to cash without loss of value.

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                                                                  [Read Also: Understanding the risks in bond investing]

                                                                  Know your risk appetite

                                                                  As a salaried and fixed income individual, your risk appetite is most likely going to be low as well as your risk tolerance, although your extended family profile could change all that. You need to know or understand your risk tolerance before you engage in any capital market investment.

                                                                  Your risk tolerance will and should drive the type of investments you go into. Your risk tolerance depends on your psychological makeup, your current insurance coverage, presence or absence of cash reserve, family situation, and your age among others.

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                                                                  READ: Here’s what will happen to Nigeria’s insurance sector in the short to medium term

                                                                  Talking about family situation, it is reasonable to think that a married individual whose children are still in school will be more risk averse than an unmarried person. On the other hand, older people have shorter investment time horizon within which to make up for any losses. the reason for this is because the older you get the less time you have to work to recoup on losses.

                                                                  In that case the risk tolerance of an older man will be less than those for younger folks. Again, the more cash reserve and insurance coverage you have, the more your propensity to take risk. Now having known your risk tolerance based on the underlying factors, you can then define your investment objectives

                                                                  [Read Also: Important tips on how to profit in a bearish market]

                                                                  Set your Investment objectives/goals

                                                                  Having met those essentials above, you are now ready for a serious investment plan or program. A good investment plan starts with investment objectives. Investment objectives are the force that determines what you invest in. Investment objectives range from capital preservation, to capital appreciation and constant income generation.

                                                                  Capital preservation as an investment objective implies that you, the investor, aim at minimising the risk of loss by maintaining the purchasing power of your investment. So, if you are risk averse or you will need money from your investment soon for children’s education or for building a house or you are nearing retirement, this should be your objective.

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                                                                  READ: CBN debits banks N216.1 billion for CRR compliance

                                                                  Investors whose aims are to see their investment portfolios increase in real terms over a period of time are better suited for capital appreciation as an objective. This is better for investors that are more risk tolerant and those with more potential to recoup on losses along the way.

                                                                  If you are already retired or nearing retirement, and therefore depend on your retirement plan supplemented by investment income, you need an investment that generates income rather than capital gains. In that case, your investment objective should be current income generation. It is always good to have investment goals stated in terms of risk and returns.

                                                                  [Read Also: I-Invest generates over N2 billion transaction in less than 6 months]

                                                                  Decide on asset allocation

                                                                  Armed with the knowledge of your risk appetite and investment objective, you are now ready to decide on what to invest in, and how much to invest in any asset class. This takes you to asset allocation decisions. Asset allocation involves dividing an investment portfolio among different asset classes based on an investor’s financial requirements, investment objectives and risk tolerance.

                                                                  A right mix of asset classes in a portfolio provides an investor with the highest probability of meeting his/her investment objectives. Asset allocation is the most important investment decision an investor can make in a portfolio because it demonstrates an investor’s understanding of his or her risk preferences and return expectations.

                                                                  READ: How to build a profitable Mutual Fund Portfolio

                                                                  It is good to strive for a diversified portfolio. Unfortunately, the Nigerian market does not provide a lot of asset classes for optimal diversification, but diversification can be achieved across sectors or industries within the few asset classes in the Nigerian stock market.

                                                                  Decide on how to invest

                                                                  There are different ways to invest in the capital market. You can invest directly by making the stock selections by yourself, thanks to the online stock trading platforms that abound the world over. This implies that you have what it takes to conduct the required research and analysis of the companies whose shares or stocks you wish to buy.

                                                                  [Read Also: How I Would Invest My Mother’s Retirement Funds]

                                                                  It also implies that you have what it takes to know when to sell or add to existing positions. Another method is to have someone “do the heavy lifting” for you. In this case, that someone, often times called fund manager or portfolio manager, does the research and analysis and selects shares that suit your investment preferences, investment objectives, risk tolerance and appetite as well as your investment time horizon.

                                                                  This route is most suitable for investors that lack the knowledge and time for the required research and analysis. If you decide to go this route, mutual funds are the best bet for you.

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